On hyperbolic discounting and uncertain hazard rates

  • Sozou P
  • 108


    Mendeley users who have this article in their library.
  • 115


    Citations of this article.


The value of a future reward should be discounted where there is a risk that the reward will not be realized. If the risk manifests itself at a known, constant hazard rate, a risk-neutral recipient should discount the reward according to an exponential time-preference function. Experimental subjects, however, exhibit short-term time preferences that differ from the exponential in a manner consistent with a hazard rate that falls with increasing delay. It is shown here that this phenomenon can be explained by uncertainty in the underlying hazard. The time-preference function predicted by this analysis can be calculated by means of either (i) a direct superposition method, or (ii) Bayesian updating of the expected hazard rate. The observed hyperbolic time-preference function is consistent with an exponential prior distribution for the underlying hazard rate. Sensitivity of the predicted time-preference function to variation in the probability distribution of the underlying hazard rate is explored.

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Get full text


  • P. D. Sozou

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free